Even if the government manages to collect the same tax amount in the last four months of FY21 as it did last fiscal, the total tax collection would be around Rs 18.6 lakh crore, almost 6 lakh crore lower than the budgeted estimate
Showing continuous improvement in tax collection, the central government collected 23 per cent higher taxes in November 2020 compared to last year. The gross tax collected in November 2020 stood at Rs 1.5 lakh crore compared to Rs 1.22 lakh crore in the same month last year.
This is the second month in a row that the government’s gross tax collections were better than previous year. In October 2020, the gross tax collection was 17 per cent higher than last year. This is significant as it shows revival in economic activities following relaxation on lockdown rules across the country.
“The sharp uptick in the monthly tax revenues in November 2020 was driven by personal income tax, excise duty and customs duty, whereas corporate tax collections continued to record a contraction,” says Aditi Nayar, Principal economist, ICRA Ltd.
However, the central government’s gross tax collection in the first eight months of the current financial year was barely 42 per cent of the budget target of Rs 24.2 lakh crore. According to data released by the government, the gross tax collection till November 2020 has been Rs 10.2 lakh crore, which is 12 per cent lower than last year’s collection of Rs 11.74 lakh crore.
Even if the government manages to collect the same tax amount in the last four months of the financial year as it did last year (Rs 8.34 lakh crore), the total tax collection would be around Rs 18.6 lakh crore, almost 6 lakh crore lower than the budgeted estimate.
“Our estimate places the gross tax revenues of the government at Rs. 7.7 lakh crore in the last four months of 2020-21, 8 per cent lower than Rs 8.4 lakh crore garnered in the year-ago period. This appears achievable given the recent upswing in various lead indicators of the economy, GST inflows exceeding year-ago levels, robust excise inflows, and base effect related to corporate tax collections, that would boost tax generation in the remainder of 2020-21,” says Nayar of ICRA.
What is dragging the government’s revenue most is the corporate tax collection, which is still 36 per cent lower than last year. The government has collected Rs 1.85 lakh crore between April and November 2020 compared to Rs 2.88 lakh crore during the corresponding period same year.
Income tax collection has seen uptick since September and the collection (Rs 2.35 lakh crore) in April-November 2020 is only 12 per cent lower than Rs 2.67 lakh crore recorded last year during the same period. In the three months from September to November 2020, the income tax collections have been better than last year.
GST collections have also shown recovery with total mop-up during the April-November 2020 period at Rs 3.33 lakh crore, which is only 16.5 per cent lower than last year’s collection of Rs 3.98 lakh crore. This gap was 24 per cent in August.
Meanwhile, the Central government’s fiscal deficit till November was Rs 10.8 lakh crore against the budgeted target of Rs 7.96 lakh crore. The fiscal deficit till November was also 33 per cent higher than Rs 8.07 lakh crore during the same year last year.
ICRA predicts the full year fiscal deficit for 2020-21 at Rs 14.5 lakh crore, which is 7.5 per cent of the nominal GDP.